What is price elasticity and can you give me some examples?

What is price elasticity and can you give me some examples?

Price elasticity measures how the quantity demanded of a good responds to price changes. For example, if the price of coffee increases by 10% and the quantity demanded decreases by 20%, the price elasticity of demand is -2, indicating it's elastic.

Can you explain what elastic and inelastic demand mean?

Elastic demand means that consumers are sensitive to price changes; a small price increase leads to a large drop in quantity demanded. Inelastic demand means consumers are less sensitive; price changes have a smaller effect on the quantity demanded.

What are some real-world examples of elastic and inelastic products?

An example of an elastic product is luxury goods like designer handbags, where demand drops significantly with price increases. In contrast, essential goods like insulin for diabetics are inelastic, as people need them regardless of price.

How does price elasticity affect businesses?

Understanding price elasticity helps businesses set prices strategically. If demand is elastic, lowering prices can increase total revenue, while if demand is inelastic, raising prices might be more profitable.